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Technology Stocks : Hewlett-Packard (HPQ) -- Ignore unavailable to you. Want to Upgrade?

To: The Duke of URL© who wrote (2197)	11/15/2002 12:57:20 PM
From: PCSS	Read Replies (4) \| Respond to of 4345

Where Does Capellas' Departure Leave HP? FORTUNE.COM Tuesday, November 12, 2002 Leaving Hewlett-Packard is clearly good for Michael Capellas, but what effect will the loss of its president have on HP? The company announced Monday that Capellas, its president and chief operating officer, was departing. He's now the leading candidate to become CEO of embattled, scandal-ridden, bankrupt telecommunications provider WorldCom. Capellas had been CEO of Compaq before its May merger with HP. I was always impressed with his commitment to the merger, despite the certainty that he would no longer be CEO. He worked doggedly to convince investors the deal was right for Compaq's shareholders (and HP's). He subsumed his own ego impressively, always claiming that he was willing to drop the CEO title for the greater good. Perhaps he was also motivated by the prospect of the $15 million-plus payout he now gets on departure. He's keeping his stock options for three years as well, an arrangement that alone could be worth tens of millions if CEO Carly Fiorina performs. He negotiated this payout prior to the completion of the deal, and the generous terms would have expired next year. He gave himself a financial incentive to get the deal done and get out. I hate it that these people throw money at themselves so freely, when ordinary employees don't even keep options when they leave. But for Mike, leaving becomes a no-brainer. Now that he's set financially, why shouldn't Capellas take on the WorldCom mess? He's an energetic, ambitious guy. He may not be from the telecommunications industry, but he knows a lot about it from selling to it for many years (though not enough lately). WorldCom retains huge assets for competing with the regional phone companies, and it also still operates the largest portion of the Internet's backbone. That has to be attractive to a geek like Capellas. And with his CIO background, he is the perfect guy to help WorldCom solve one of its biggest operational problems-the inadequacy of its internal systems. Former CEO Bernie Ebbers made acquisition after acquisition without integrating the disparate software of each company. For Capellas, it's pure upside. But what does his exit mean for HP? Wall Street shaved $6 billion off HP's market cap on the news Capellas would be leaving, presumably because investors were worried about the company losing his savvy. (The stock climbed back some today.) Managers at the company were generally surprised by his move. Capellas commanded substantial respect at HP, where all operating units had, at least ostensibly, reported to him. His departure leaves Fiorina alone at the top. She is, by experience, mostly a marketer--albeit a master marketer. And as Adam Lashinsky's story in the current issue of Fortune makes clear, selling has been what Fiorina had to do most in the last year--selling the deal to skeptical investors, selling the new structure to disaffected employees, and reselling products and services to customers of both companies who might otherwise have begun to stray. Fiorina clearly understands a lot about HP's businesses, but it's hard to be sure how much she understands about technology. The fact is, she hasn't talked enough about it. She has said that to compete with IBM, HP needed to add Compaq's services and product heft, and that was probably right. But Capellas is a techie and an operations guy. He talked tech all the time. He had been at Oracle and then CIO at Compaq before its then-Chairman Ben Rosen elevated him to CEO unexpectedly in 1999. One of the most significant things HP has done lately has been to try to become Microsoft's premier hardware and services partner for corporate customers. As IBM moves more and more toward the Linux operating system in all its businesses, for HP to orient itself towards Microsoft and Windows is a way to present a clear alternative. And Capellas, who has been talking about the importance of industry-standard computing for years, seemed to me more a driver of that strategy than Fiorina. HP shows signs of great progress in making the merger work, and Capellas' departure causes no immediate harm. If his ex-Compaq colleagues stay, as most predict, HP can still thrive. That's assuming it keeps fine-tuning its operations to stay competitive not only with IBM, but with Dell. It won't be easy in either case--and it may be a little harder without Capellas.